As you apply to research positions, internships, and scholarships, you may see the term “stipend” come up a lot. But what is a stipend, and how do they work? Stipends are a bit different from wages, although they both end up paying you money. It’s a good idea to have a comprehensive knowledge of the term so you know all of the rules for how you’re receiving your money.
Here, we’ll go over the technical definitions of the term compared with salary. We’ll discuss where you’re most likely to encounter stipends versus salaries. Finally, we’ll close with the most important piece: what that means for you. You’ll get a good idea of how the two types of payment can be taxed and used differently.
Related: Are work study earnings taxed?
What is a stipend?
Stipends are paid to people who are performing positions that do not function under the typical wage system. This could be because the primary function of their position is to educate them or because they are volunteering. They can also be offered as part of a scholarship reward. In all of these circ*mstances, an organization is paying an individual for a reason other than services rendered. In these cases, you don’t have an employer-employee relationship.
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What is the purpose of a stipend?
The purpose of a stipend is not to compensate someone for their work, but rather, to allow them to satisfy living expenses while they perform their duty. For example, nonprofits may offer stipends for at-risk youths to learn work skills. This allows them to put food on the table while learning skills to land a job. They are not getting paid for their work, but rather to allow them to work.
College stipends typically come as part of scholarship rewards. They are especially common for recipients of full-ride scholarships. Once the tuition and fees are all paid, there are still living expenses that come along with college. This is where a stipend comes in; a scholarship organization will pay the student a flexible amount of money to pay for things like books and basic living expenses.
Also see: Tuition reimbursem*nt: What it is and who offers it
Stipend versus salary
So, while both stipends and salaries put money in the recipient’s pocket, they serve different purposes. If you receive a salary, you are being compensated for a service that you perform. For example, you earn money for your company or help fulfill the mission of your nonprofit. This is the primary function of your job. You may gain skills from your work, but that is not the intention behind your employment.
On the other hand, stipend earners are occupying a position where their own development is the main objective. This could be for an apprenticeship or an internship. It could even be through volunteer opportunities like the Peace Corps. And, most relevantly for college students, it could be through scholarships. When you win a scholarship, the organization is not paying you for the services you provide to them. They are paying you to ensure that you can afford to attend school and benefit from their assistance.
Also see: The Peace Corps and college loans: What you need to know
How college stipends differ from others
College stipends are unique because, rather than taking the place of a salary, they are basically just an extra source of income. After winning a scholarship, you’ll automatically receive your stipend as long as you continue to satisfy internship requirements and attend college. Some scholarships may require you to submit documentation that your stipend is being used on approved expenses. However, most of the time, the money is used at your discretion.
Related: What are internships and why are they important?
Where you’ll see stipends offered
Here are some situations in which you may expect to see stipends offered instead of salaries:
- Scholarships
- Unpaid internships
- Research opportunities
- Apprenticeships
- Volunteer opportunities
- Summer programs
What this means for you
If you are receiving a college stipend, congrats on winning a scholarship! You should be sure to check in with your scholarship organization about any rules around your stipend. Also, check whether you need to document how you spent your stipend to satisfy requirements. Finally, make sure you ask about how taxes will interact with your stipend. Some college stipends won’t be taxed at all, but others will. Check beforehand that you are filling out the right tax information and that you know how much you’ll owe in taxes before tax-day rolls around.
Related: Everything you need to know about graduate assistantships
Key Takeaways
Frequently asked questions about college stipends
A stipend could be used for almost anything as long as it is to assist with living or work-related expenses. However, it does come down to the restrictions of the stipend specifically so double check any rules regarding your stipend. Can a college stipend be used for anything?
Stipends paid to college students in return for work performed for the university are not considered financial aid. Rather, these stipends are wages that are reported on a W-2 statement at the end of the year’s income. These stipends are reported on the tax return as wages and are reported on the following years FAFSA. Do stipends affect financial aid?
